A 'fuel island'; no easy answer to fixing California's record gas prices

As Californians fume over the latest record-setting spike in gas prices, there's a big question at the pumps: Is there any way out?

Not really, say industry officials, environmentalists and state regulators.

Skyrocketing gas prices over the past week have been blamed on two key issues: outages at California refineries and the fact that the state requires a unique type of clean-burning summer gasoline that can't be easily replaced or imported from other places during shortages.

As a result, California is a "fuel island," vulnerable to disruptions and price spikes. Even temporary solutions pose problems.

Experts say the state can't just dump the special "California only" gas -- unless there are major changes to federal pollution laws that would allow California to dramatically increase its already high smog levels. And because of the health problems that would cause -- increased emphysema, asthma and even deaths -- the chance of that isn't high.

"I don't know that there is a solution to this," said Jay McKeeman, vice president of the California Independent Oil Marketers Association. "It's the price we pay for living in California."

Building new refineries isn't likely. Oil companies aren't proposing to build them, in part because state pollution laws are strict, but mostly because the demand isn't there. California gasoline usage peaked in 2006 and has fallen 8 percent since then due to the recession and people buying more fuel-efficient vehicles.

And most of the time, there's no production shortage. For the past several years, California's 14 refineries have produced enough gasoline to meet the state's demand and have enough leftover to sell to other states and countries.

"After the recession hit hard, refineries were exporting fuel to keep their plants operating and their workers employed," said Tupper Hull, a spokesman for the Western States Petroleum Association. "Generally, that's considered a good thing. It's a high-value export."

California gas prices dipped a half-penny Wednesday, the first drop after a week that saw prices surge a record 50 cents.

The statewide average for regular unleaded was just under $4.67 a gallon, still the highest in the nation, according to AAA's Daily Fuel Gauge Report. On Tuesday, the statewide average price of gasoline hit a record $4.671 per gallon. That's up slightly from Monday, when it was $4.668, and up nearly 50 cents from a week before, according to AAA.

Analysts say prices jumped because of a fire at the Richmond Chevron refinery in August and a power outage Oct. 1 at the Exxon Mobil refinery in Torrance that temporarily reduced production.

On Sunday, Gov. Jerry Brown ordered the California Air Resources Board to allow oil companies to make a dirtier type of winter-blend gasoline, which the state's refineries are normally not allowed to start selling until Oct. 31. Refineries can make that gasoline more cheaply, and at 8 to 10 percent more volume per barrel of oil.

Combine Brown's order with the fact that the Exxon Mobil refinery in Torrance was back up and running Friday, and experts say the price should be falling soon.

"By the end of the week you are going to start to seeing prices 10 to 20 cents cheaper, " said Denton Cinquegrana, executive editor of the Oil Price Information Service, a New Jersey company that tracks petroleum prices.

How did California find itself requiring a type of gasoline no other state uses?

It has the worst smog, more people and more cars than any other state. Its hot summer weather -- particularly in places like Los Angeles and the Central Valley -- cooks emissions from cars, trucks, factories and power plants to form choking levels of smog.

The state's special blend of gasoline dates back to 1971, when Gov. Ronald Reagan's administration required that fuel sold during the summer be refined in a way that causes less evaporation.

The way to reduce evaporation is to lower what's known as the "Reid Vapor Pressure." The Reagan rule in 1971 required that no gasoline could be sold in California with a pressure above 9 pounds per square inch during summer.

Eventually, in 1989, the U.S. Environmental Protection Agency copied that summer standard for every state. But California decided to go further. Former Gov. Pete Wilson's air board lowered the standard to 7 psi in 1996. No other state is that low. Smog levels today are dramatically lower than a generation ago.

A study by economists at the University of Michigan and University of California last year found that California's summer gasoline blend adds 8 to 11 cents per gallon, and saves 660 lives a year. But much of California still doesn't meet the health standards under the Clean Air Act.

That landmark law was signed by President Richard Nixon in 1970, and requires states to meet federal air standards or lose highway funding. If the state dumped summer gasoline, it would have to find other ways to cut emissions to comply with federal law. That could mean everything from toll roads to banning cars in large cities, as London has already enforced, said David Petit, a senior attorney with the Natural Resources Defense Council.

"We've done the easy stuff," he said. "What's left is the hard stuff."

One solution, said Severin Borenstein, director of the University of California Energy Institute, might be to allow dirtier fuel to be sold in California, but with a 25-cent surcharge. Normally, there would be no market for it. But when refineries had fires and outages, it would help keep price spikes low. Critics almost certainly would fight that as a gas tax.

"Gasoline costs a lot mostly because of the high price of oil, which is driven by world demand," Borenstein said. "What can you do? Buy a more fuel-efficient car."